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Abstract: 

This paper examines the association of the level of funding of city government pension fund liabilities with (1) the cost of municipal bond insurance and (2) the credit rating awarded on municipal debt, using data disclosed under Statement No. 34 of the Governmental Accounting Standards Board (GASB 34) for insured general obligation debt issued by Texas cities. The analysis includes two different measures of pension underfunding to proxy for the level of funding. One of the measures is based on data from GASB 34. It finds that the level of pension funding is weakly related to the cost of municipal bond insurance and is strongly related to the credit rating on municipal debt.

Keywords: Municipal pension funding, underfunded municipal pension obligations, bond insurance premiums, bond ratings

Affiliations:  1: Western Washington University; 2: University of Houston-Clear Lake.